Report to the Honorable Tom Harkin, 

U.S. Senate 

United States General Accounting Office 

GAO 

May 2003 DEFENSE 

INVENTORY 

Overall Inventory 

and Requirements 

Are Increasing, but 

Some Reductions in 

Navy Requirements 

Are Possible 

GAO-03-355 
DOD reported a $5.6 billion increase in inventory on hand and a $1.7 billion 

increase in inventory on order between September 30, 1999, and September 

30, 2001. The reported inventory increases were primarily due to the Navy 

reporting aviation parts held by ships and air squadrons that were previously 

not reported and to overall DOD inventory requirements increases. In 

addition, GAO identified large imbalances in the department’s inventory; as 

of September 30, 2001, over 1.7 million items had $38 billion of inventory 

that exceeded the items’ current inventory operating requirements of 

$24.9 billion (see table below). At the same time, there were 523,000 items 

that needed an additional $10.4 billion of inventory to meet the items’ 

current inventory operating requirements. 

Generally, inventory increases are the result of increases in inventory 

requirements. DOD’s overall inventory requirements increased by 

$10.6 billion, or 26 percent, between the end of fiscal years 1999 and 2001, 

with some of the Navy’s requirements being overstated. The Navy was 

responsible for the largest dollar increase, $4.7 billion of the $10.6 billion 

increase. A large part of the Navy increase, $3.4 billion, was attributable to a 

change in the way the Navy accounted for aviation parts held by ships and 

air squadrons. The remaining Navy increase was attributable to a variety of 

reasons, such as price increases; increased demand and item wear-out rates; 

and, in some cases, inaccurate data. Also, since 1997 the Navy has reduced 

the amount of administrative lead time it takes to place inventory orders (the 

period between when the need to replenish an item through a purchase is 

identified and when a contract is let), yet it has not formally updated the 

data used to compute those requirements. For example, the Navy reduced 

the administrative lead time for medium-sized sole-source contracts for 

repairable items from 200 days to 130 days, but it did not recognize the 

reduction in its requirements computations. As a result, those requirements 

are inaccurate and overstated. 

Value of DOD’s Inventory On Hand and On Order for Items That Had Too Much Inventory by 

Military Component as of September 30, 2001 

Dollars in billions 

Military component 

Inventory 

satisfying requirements 

Inventory 

 exceeding requirements 

Army $2.8 $3.7

Navy 7.3 8.8

Air Force 10.5 19.4

Defense Logistics 

Agency 4.3 6.1

Total $24.9 $38.0

Source: DOD.

DEFENSE INVENTORY

Overall Inventory and Requirements Are 

Increasing, but Some Reductions in Navy 

Requirements Are Possible 

www.gao.gov/cgi-bin/getrpt?GAO-03-355.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact William M. Solis 

at (202) 512-8365 or solisw@gao.gov. 

Highlights of GAO-03-355, a report to the 

Honorable Tom Harkin, U.S. Senate 

May 2003 

Changes in the Department of 

Defense’s (DOD) mission can 

lead to changes in inventory 

requirements, which, in turn, 

determine the size of DOD’s 

inventory. Since 1990, GAO has 

identified DOD’s management of 

inventory as a high-risk area 

because levels of inventory were 

too high and management systems 

and procedures were ineffective. 

Furthermore, DOD has attributed 

readiness problems to parts 

shortages. In this report, GAO 

(1) provides information on 

changes in and make up of the 

department’s inventory and 

(2) analyzes changes in inventory 

requirements, focusing on the 

Navy. 

Because the long-standing 

logistical problems associated with 

inventory excesses and shortages 

have been addressed in prior 

reports as well as in GAO’s 

Performance and Accountability 

Series reports, GAO is not making 

any additional recommendations in 

regard to those issues. However, to 

improve the accuracy of the Navy’s 

inventory requirements, GAO 

recommends that the Secretary of 

Defense require the Navy to ensure 

that the most current data available 

for computing its administrative 

lead time requirements are being 

used. DOD generally concurred 

with GAO’s report, and stated that 

the Navy formally updated its 

system to begin using the most 

current data available to compute 

administrative lead time 
Page i GAO-03-355 Defense Inventory 

Letter 1

Results in Brief 2

Background 4

Inventory Growth Reverses Past Reductions 5

Requirements Are Increasing, but Some of Navy’s Are Overstated 12

Conclusions 18

Recommendation for Executive Action 19

Agency Comments 19

Appendix I Scope and Methodology 21 

Appendix II GAO Reports and Open Recommendations Relating 

to DOD’s Inventory Management Problems 22 

Appendix III DOD and Military Component Inventory Requirements 

at the End of Fiscal Years 1999 and 2001 31 

Appendix IV Reasons for Requirements Increasing between 

September 30, 1999, and September 30, 2001, for 

90 Sample Items 36 

Appendix V Comments from the Department of Defense 38 

Appendix VI Staff Acknowledgments 40 

Contents 
Page ii GAO-03-355 Defense Inventory 

Tables 

Table 1: Value of DOD’s Inventory On Hand and On Order for Items 

That Had Too Much Inventory by Military Component as 

of September 30, 2001 9

Table 2: Comparison of Inventory Requirements by 

Military Component as of September 30, 1999, and 

September 30, 2001 12

Table 3: Comparison of Requirements for 279,000 Items Managed 

by the Navy at the End of Fiscal Years 1999 and 2001 15

Table 4: Reasons for Navy Requirements Increases for Items 

Reviewed 17

Table 5: Comparison of Inventory Requirements for the 

Department of Defense at the End of Fiscal Years 1999 

and 2001 31

Table 6: Comparison of Inventory Requirements for the Defense 

Logistics Agency at the End of Fiscal Years 1999 and 2001 32

Table 7: Comparison of Inventory Requirements for the Army at 

the End of Fiscal Years 1999 and 2001 33

Table 8: Comparison of Inventory Requirements for the Navy at the 

End of Fiscal Years 1999 and 2001 34

Table 9: Comparison of Inventory Requirements for the Air Force 

at the End of Fiscal Years 1999 and 2001 35

Figures 

Figure 1: DOD’s Reported Inventory On Hand at the End of 

Fiscal Years 1996 through 2001 6

Figure 2: DOD’s Reported Inventory On Order at the End of 

Fiscal Years 1996 through 2001 7

Figure 3: DOD Inventory On Order and On Hand and Needed 

Purchases for Items That Did Not Have Enough Inventory 

as of September 30, 2001 10

Figure 4: Changes in Navy Inventory Requirements between 

September 30, 1999, and September 30, 2001 14
Page iii GAO-03-355 Defense Inventory 

Abbreviations 

DOD Department of Defense 

GAO General Accounting Office 

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Permission from the copyright holder may be necessary should you wish to reproduce 

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Page 1 GAO-03-355 Defense Inventory 

May 8, 2003 

Dear Senator Harkin: 

The Department of Defense maintains a supply of spare and repair parts in 

order to keep its equipment operational for war- and peace-time missions. 

The management of this inventory is especially critical as the department 

and the services are called upon for new missions relating to combating 

terrorism worldwide and protecting the homeland. Such changes in 

missions can lead to changes in inventory requirements, which, in turn, 

determine the size of the inventory. 

This report, in response to your interest in the Department of Defense’s 

inventory management, is one in a series on the department’s management 

of secondary inventory—that is, spare and repair parts, clothing, medical, 

and other items that support the military’s operating forces. Since 1990, we 

have identified the department’s management of secondary inventory as a 

high-risk area because levels of inventory were too high and management 

systems and procedures were ineffective. While some improvements have 

been made, in January 2003 we reported that these conditions still existed 

and that over half of the department’s inventory is not needed to satisfy 

current operating requirements.1

 Nevertheless, the department has 

attributed readiness problems to parts shortages. In response to your 

request, this report (1) provides information on changes in and make up 

of the department’s inventory and (2) analyzes changes in inventory 

requirements, with a focus on causes of requirements changes derived 

from a sample of Navy inventory items. 

To accomplish this review, we expanded on previously reported analyses2

to cover inventory data from fiscal year 1996 through 2001 for the Army, 

the Navy, the Air Force, and the Defense Logistics Agency. We also 

analyzed inventory data as of September 30, 2001, to show the number of 

items that had more than or less than enough inventory to satisfy 

 1

 U.S. General Accounting Office, Major Management Challenges and Program Risks: 

Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 30, 2003). 

2

 U.S. General Accounting Office, Defense Inventory: Status of Inventory and Purchases 

and Their Relationship to Current Needs, GAO/NSIAD-99-60 (Washington, D.C.: 

Apr. 16, 1999). 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-355 Defense Inventory 

requirements. We compared September 30, 1999, inventory requirements 

to September 30, 2001, inventory requirements for the military services3

and the Defense Logistics Agency. We used data as of September 30, 2001, 

because that was the most recent end of fiscal year data available when 

we began our examination. We did not revalue the inventory that needs to 

be repaired to recognize the repair cost, and we did not value inventory 

that is to be disposed of at salvage prices. Also, our analyses did not 

include fuel, certain inventories held by units, and Marine Corps inventory. 

Fuel and inventories held by units are not stratified by requirement, and 

the Marine Corps inventory represents a small part of the universe. 

Because the Navy had the largest increase in inventory requirements 

during the period, we analyzed a sample of selected Navy inventory items 

to identify key causes of increased inventory requirements. We conducted 

our review from June 2002 through March 2003 in accordance with 

generally accepted government auditing standards. We provide the details 

of our scope and methodology in appendix I. 

The Department of Defense reported a $5.64

 billion and a $1.7 billion 

increase in inventory on hand and on order, respectively, between 

September 30, 1999, and September 30, 2001. The on-hand and on-order 

inventories had increased to $69.8 billion and $9.9 billion, respectively. 

The reported inventory increases were primarily due to the Navy reporting 

aviation parts held by ships and air squadrons that were previously not 

reported and to overall Department of Defense inventory requirements 

increases. In addition, large imbalances in the department’s inventory 

continue to exist. As of September 30, 2001, over 1.7 million items had 

$38 billion of inventory on hand or on order that exceeded the items’ 

current inventory operating requirements of $24.9 billion. At the same 

time, 523,000 items needed an additional $10.4 billion of inventory to meet 

the items’ current inventory operating requirements. In 1997, we reported 

that requirements decreases contributed to items having inventory on 

hand that exceeded current requirements.5

 Similarly, in 2000, we reported 

 3

 In this report, we refer to the Army, the Navy, and the Air Force as military services; when 

referring to the Army, the Navy, and the Air Force, and the Defense Logistics Agency, we 

use military components. 

4

 In this report, all numbers over 1,000 are rounded. Inventory and requirement values are 

in current dollars. 

5

 U.S. General Accounting Office, Defense Logistics: Much of the Inventory Exceeds 

Current Needs, GAO/NSIAD-97-71 (Washington, D.C.: Feb. 28, 1997). 

Results in Brief 
Page 3 GAO-03-355 Defense Inventory 

that while inventory managers made inventory purchases that were 

supported by requirements, subsequent requirement decreases resulted in 

the purchases being in excess of requirements.6

 The current data indicate 

that many of these long-standing and systemic inventory management 

problems—which have been consistently identified as a high-risk area in 

our Performance and Accountability Series reports—continue to exist. 

Although the services are implementing management changes—initiatives 

to transfer the management and oversight of some of the department’s 

inventory to parts contractors and to implement new inventory 

management systems—that will reduce the size of the department’s 

reported inventory, these changes do not address the long-standing and 

systemic problems. 

The department’s overall inventory requirements increased by 

$10.6 billion, or 267

 percent, between the end of fiscal years 1999 and 2001, 

with some of the Navy’s requirements being overstated. The Navy was 

responsible for the largest dollar increase, $4.7 billion of the $10.6 billion 

increase. A large part of the Navy increase, $3.4 billion, corresponded to 

its reporting of requirements associated with aviation parts held by ships 

and air squadrons that were not previously reported. The remaining Navy 

increase was due to a variety of reasons, such as price increases; increased 

demand, inventory lead time,8

 and item wear-out rates that increased 

safety levels; and, in some cases, inaccurate data. Also, since 1997 the 

Navy has reduced the amount of administrative lead time it takes to place 

inventory orders, yet it has not formally updated the data used to compute 

those requirements. For example, the Navy reduced the administrative 

lead time for medium-sized sole-source contracts for repairable items from 

200 days to 130 days, but it did not recognize the reduction in its 

requirements computations. As a result, those Navy requirements are 

inaccurate and overstated. 

Many of the long-standing and systemic logistical problems associated 

with having both too much inventory for some items and not enough 

inventory for others have been addressed in our prior reports as well as in 

our Performance and Accountability Series, and we therefore are not 

 6

 U.S. General Accounting Office, Defense Inventory: Process for Canceling Inventory 

Orders Needs Improvement, GAO/NSIAD-00-160 (Washington, D.C.: June 30, 2000). 

7

 In this report, percentages are rounded to the nearest whole number. 

8

 The inventory lead time refers to the time elapsed between when the need to replenish 

inventory through a purchase is identified and when the order is received. 
Page 4 GAO-03-355 Defense Inventory 

making any new recommendations in regard to those issues. We provide a 

list of those reports and past recommendations in appendix II. However, 

to improve the accuracy of the Navy’s inventory requirements, we are 

recommending that the Secretary of Defense require the Navy to use the 

most current data available for computing its administrative lead time 

requirements. In commenting on a draft of the report, the department 

generally concurred with the report. With regard to our recommendation, 

the department noted that item managers use the most current data 

available to manually compute administrative lead time requirements 

when making management decisions for individual items and that in 

March 2003, the Navy formally updated its automated inventory system to 

begin using the most current data available to compute administrative lead 

time requirements for all items. This action to update the Navy’s 

automated inventory system responds to our recommendation. 

The Department of Defense (DOD) refers to the amount of secondary 

inventory that it needs to have on hand or on order to support current 

operations as the requirements objective. The requirements objective 

includes inventory requirements for a reorder point and an economic 

order quantity. The reorder point is the point at which inventory 

replenishment will normally prevent out-of-stock situations from 

occurring. The economic order quantity is the amount of inventory that, 

when ordered and received, results in the lowest total cost for ordering 

and holding inventory. 

When the combined total of on-hand and on-order inventories falls to or 

below the reorder point, an item manager generally places an order for 

additional inventory so that the total of on-hand and on-order inventories 

is equal to the requirements objective. Subsequently, on-hand inventory is 

used to satisfy customer requisitions that are received after the item 

manager orders new inventory, and thus the total of on-hand and on-order 

inventories is generally less than the requirements objective. Furthermore, 

an item’s reorder point can move up or down over time and—depending 

on the item—may include one or more of the following: 

• war reserves,9

• unfilled requisitions, 

 9

 War reserves are authorized to be purchased to facilitate fast mobilization in the event 

of war. 

Background 
Page 5 GAO-03-355 Defense Inventory 

• a safety level to be on hand in case of minor interruptions in the resupply 

process or unpredictable fluctuations in demand, 

• minimum quantities for essential items for which demand is not normally 

predicted (also referred to as insurance items), 

• inventory to satisfy demands while broken items are being repaired, 

• inventory to satisfy demands during the period between when the need to 

replenish an item through a purchase is identified and when a contract is 

let (also referred to as administrative lead time), and 

• inventory to satisfy demands during the period between when a contract 

for inventory is let and when the inventory is received (also referred to as 

production lead time). 

Because the reorder point provides for inventory to be used during 

the time needed to order and receive inventory and for a safety level, 

item managers are able to place orders so that the orders arrive before 

out-of-stock situations occur. Generally, an item manager orders an 

amount of inventory needed to satisfy both the reorder point requirement 

and the economic order quantity. 

Between September 30, 1999, and September 30, 2001, DOD’s inventory 

on hand increased by $5.6 billion and inventory on order increased by 

$1.7 billion, reversing past inventory reductions. These inventory increases 

were primarily due to the Navy reporting aviation parts held by ships and 

air squadrons that were previously not reported and to overall DOD 

inventory requirements increases. In addition, large imbalances in the 

inventory continue to exist. As of September 30, 2001, over 1.7 million 

items had $38 billion of inventory on hand or on order that exceeded the 

items’ current inventory operating requirements of $24.9 billion. We also 

identified 523,000 items that did not have enough inventory on hand or 

on order to meet the items’ current inventory operating requirements. 

While the services are implementing management changes that will 

reduce the size of DOD’s inventory, long-standing and systemic inventory 

management problems continue to exist. 

Inventory Growth 

Reverses Past 

Reductions 
Page 6 GAO-03-355 Defense Inventory 

As of September 30, 2001, DOD’s on-hand inventory was $69.8 billion, up 

$5.6 billion, or 9 percent, since September 30, 1999, and on-order inventory 

was $9.9 billion, up $1.7 billion, or 21 percent (see figs. 1 and 2). 

Figure 1: DOD’s Reported Inventory On Hand at the End of Fiscal Years 1996 

through 2001 

Inventory On Hand and 

On Order Has Begun 

to Increase 
Page 7 GAO-03-355 Defense Inventory 

Figure 2: DOD’s Reported Inventory On Order at the End of Fiscal Years 1996 

through 2001 

As indicated in figures 1 and 2, the period September 30, 1996, to 

September 30, 1999, shows a decline in on-hand and on-order inventories. 

During this period, inventory on hand dropped $5.5 billion and inventory 

on order dropped $0.7 billion. 

A Navy inventory reporting change and increased DOD inventory 

requirements contributed significantly to the growth in DOD’s inventory. 

In 1996, the Navy began including aviation inventories held by ships and 

air squadrons in its inventory reports. Most of the change occurred in 1999 

when the Navy began reporting parts held by aircraft carriers. Previously, 

the Navy considered these inventories as having been sold to ships and 

installations and not as reported inventory. Based on Navy records, we 

estimate that parts valued at about $3.3 billion10 were added to the 

reported inventory as a result of the accounting change. A similar change 

by the Army resulted in an inventory increase of $0.3 billion between 

 10 While requirements increased by $3.4 billion, on-hand inventory increased by $3.3 billion. 

On-order inventory also increased. 

Inventory Growth Caused 

by Reporting Changes and 

Requirements Increases 
Page 8 GAO-03-355 Defense Inventory 

September 30, 1999, and September 30, 2001. These Navy and Army 

inventory reporting changes correspond to the reporting methods already 

in use by the Air Force. 

In addition, overall DOD inventory requirements increased from 

$40.6 billion as of September 30, 1999, to $51.2 billion as of September 30, 

2001. Increased requirements can affect an item’s reorder point and 

economic order quantity. Consequently, an increase in requirements can 

affect when item managers place orders and the amount of inventory they 

purchase and can affect how much inventory is on hand. For example, if 

the requirements increase and enough inventory is not on hand or on 

order to satisfy the requirements, an item manager will place an order for 

additional inventory. When the additional inventory is received, inventory 

levels will also be increased. 

Since 1995 we have reported on imbalances in DOD’s inventory, and 

our current work shows that these imbalances continue to exist.11 Our 

comparison of September 30, 2001, on-hand and on-order inventories to 

the requirements objectives for 2.4 million items showed that 1.7 million 

items, or 70 percent, had inventory on hand or on order that exceeded the 

requirements, and 523,000 items, or 21 percent, did not have enough 

inventory on hand or on order to satisfy all of the requirements. The 

remaining 209,000 items, or 9 percent, had the right amount of inventory 

on hand and/or on order to satisfy all requirements. 

The 1.7 million items had $22.1 billion of inventory on hand and 

$2.8 billion of inventory on order that satisfied requirements and an 

additional $36 billion of inventory on hand and $2.0 billion12 on order that 

exceeded requirements (see table 1). 

 11 U.S. General Accounting Office, Defense Inventory: Shortages Are Recurring, but Not a 

Problem, GAO/NSIAD-95-137 (Washington, D.C.: Aug. 7, 1995); GAO/NSIAD-97-71; and 

GAO/NSIAD-00-160. 

12 Based on Defense Logistics Agency data, we estimate that this amount includes 

about $400 million of Defense Logistics Agency inventory that was in transit. Files 

provided by the Defense Logistics Agency did not distinguish between on-order and 

in-transit inventories. 

Large Inventory 

Imbalances Still Exist 
Page 9 GAO-03-355 Defense Inventory 

Table 1: Value of DOD’s Inventory On Hand and On Order for Items That Had Too 

Much Inventory by Military Component as of September 30, 2001 

Dollars in billions 

Inventory satisfying 

requirements 

Inventory exceeding 

requirements 

Military 

component On hand On order On hand On order 

Army $2.6 $0.2 $3.7 $0.0a

Navy 7.0 0.3 8.8 0.0a

Air Force 10.1 0.4 18.8 0.6 

Defense 

Logistics 

Agency 2.4 1.9b

 4.7 1.4b

Total $22.1 $2.8 $36.0 $2.0 

Source: DOD. 

a

 The amount is less than $50 million. 

b

 The data provided by the Defense Logistics Agency did not distinguish between inventory on order 

and inventory that was in transit. We estimate that $400 million was in-transit inventory. 

Overall, the amount of DOD’s inventory that exceeds current operating 

requirements has decreased since 1996. On-hand inventory that 

exceeds current operating requirements decreased from $41.3 billion, or 

59 percent, of on-hand inventory on September 30, 1996, to $36.1 billion, 

or 52 percent, of the $69.8 billion inventory on hand on September 30, 

2001. During the same period, DOD’s inventory on order that exceeds 

requirements decreased from $1.7 billion, or 19 percent, of on-order 

inventory to $1.6 billion, or 16 percent, of the $9.9 billion inventory on 

order. In 1997, we reported that requirement decreases contributed to 

items having inventory on hand that exceeded current requirements. 

Similarly, in 2000, we reported that while inventory managers made 

inventory purchases that were supported by requirements, subsequent 

requirement decreases resulted in the purchases being in excess 

of requirements.13

We identified 523,000 items that did not have enough inventory on hand or 

on order to satisfy all of the requirements that make up the requirements 

objective. The items had requirements valued at $23.4 billion that were 

partially satisfied by $7.7 billion of inventory on hand and $5.3 billion of 

 13 GAO/NSIAD-00-160. 
Page 10 GAO-03-355 Defense Inventory 

inventory that was on order (see fig. 3). The remaining $10.4 billion of 

requirements could be satisfied by purchases. 

Figure 3: DOD Inventory On Order and On Hand and Needed Purchases for Items 

That Did Not Have Enough Inventory as of September 30, 2001 

The amount of inventory exceeding or failing to meet inventory 

requirements indicates that many of the long-standing and systemic 

inventory management problems previously identified in our Performance 

and Accountability Series still exist.14 We recommended in these reports 

that DOD address the long-standing weaknesses that limit the economy 

and efficiency of its logistics operations, including having too much 

inventory on hand and on order and shortages of key spare parts. 

Appendix II lists past reports and recommendations relating to DOD’s 

long-standing inventory management problems. 

 14 GAO-03-98. 
Page 11 GAO-03-355 Defense Inventory 

The services are implementing management changes that will reduce 

the size of DOD’s reported inventory and the amount of inventory that 

satisfies requirements. These changes include an initiative to transfer 

the traditional DOD inventory and technical support function to parts 

contractors and initiatives to implement new inventory management 

systems. 

The services have initiatives that will transfer the traditional DOD 

inventory and technical support function to parts contractors. For 

example, as of September 30, 2001, the Navy had about 22,000 items 

that were managed by contractors. In some cases, Navy-owned inventory 

is being replaced by contractor-owned inventory. The Navy was paying 

$330 million for contractors to manage the 22,000 items, and the Navy 

planned to increase that amount to over $700 million for the next fiscal 

year. According to an official from the Office of the Secretary of Defense, 

contractor-owned inventories used to support military operations are 

not included in its inventory report. Consequently, the use of contractorowned inventories will decrease the growth of DOD’s inventory. 

In addition, new inventory management systems that the military 

components are implementing may also affect the amount of DOD’s 

reported inventory. For example, the Air Force’s requirements for 

insurance items15 decreased by $600 million between 1999 and 2001. 

According to the Air Force, the requirements decreased as a result of 

implementing a new requirements determination system that changed 

the way in which it computed those requirements. The Army, the Navy, 

and the Defense Logistics Agency are also in the process of developing 

new inventory management systems. However, the impact of the 

implementation of these new inventory management systems on the size 

of DOD’s inventory is not yet known. 

Although the initiatives described above will reduce the size of 

DOD’s inventory, they do not address the long-standing and systemic 

problems that are limiting the economy and efficiency of the department’s 

logistics operations. 

 15 Insurance items are minimum quantities for essential items for which demand is not 

normally predicted. 

Management Changes Will 

Reduce the Size of the 

Department’s Inventory 
Page 12 GAO-03-355 Defense Inventory 

DOD’s overall inventory requirements increased by $10.6 billion, or 

26 percent, between the end of fiscal years 1999 and 2001, with some of 

the Navy’s requirements being overstated. The Navy was responsible for 

$4.7 billion of the overall $10.6 billion increase. A large part of the Navy 

increase, $3.4 billion, was due to the Navy reporting change we discussed 

in the previous section—that is, reporting aviation parts held by ships 

and air squadrons as inventory that were previously not reported. 

Consequently, the Navy also began reporting the associated requirements. 

The remaining $1.3 billion Navy increase was due to a variety of reasons 

related to inventory cost and usage. However, some Navy increases were 

caused by inaccurate data used to compute administrative lead time 

requirements, and as a result, those requirements are overstated. 

DOD’s overall inventory requirements increased from $40.6 billion as of 

September 30, 1999, to $51.2 billion as of September 30, 2001, an increase 

of $10.6 billion, or 26 percent. Army, Navy, and Defense Logistics Agency 

inventory requirements increased significantly while the Air Force’s 

requirements decreased (see table 2). The Navy was responsible for the 

largest share of DOD’s overall inventory requirements increase, with 

$4.7 billion of the $10.6 billion inventory change. 

Table 2: Comparison of Inventory Requirements by Military Component as of 

September 30, 1999, and September 30, 2001 

Dollars in billions 

Military 

component 1999 2001 

Dollar

 change

Percent 

change

Navy $10.5 $15.2 $4.7 44

Defense 

Logistics 

Agency 9.1 12.4 3.3 36

Army 6.0 9.1 3.1 52

Air Force 14.9 14.5 -.5 -3

Total $40.6 $51.2 $10.6 26

Source: DOD. 

Note: Numbers may not add due to rounding. 

All requirements that comprise DOD’s requirements objective increased 

except for unfilled requisitions and nonrecurring lead time requirements 

used by the Air Force. Requirements for safety levels, items held as 

insurance against outages; economic order quantities; and production lead 

time increased most significantly. Appendix III provides a detailed 

Requirements Are 

Increasing, but Some 

of Navy’s Are 

Overstated 

Overall DOD Inventory 

Requirements Are 

Increasing 
Page 13 GAO-03-355 Defense Inventory 

comparison of the military components’ inventory requirements as of 

September 30, 1999, and September 30, 2001. 

Table 2 shows a decrease in the Air Force’s requirements. According to an 

Air Force Materiel Command official: 

• Higher congressional funding levels allowed the Air Force to buy and 

repair more of the items that were needed and reduce requirements for 

unfilled requisitions. 

• Requirements for items held as insurance against outages decreased as a 

result of implementing a new requirements determination system that 

changed the way in which the Air Force computed those requirements. 

• Requirements for war reserves decreased as a result of decreased need for 

F-16 fuel tanks. 

Navy requirements increased $4.7 billion between September 30, 1999, 

and September 30, 2001, primarily due to a change in how the Navy 

accounts for aviation inventory requirements. The remaining Navy 

increase was due to such reasons as price increases and increased usage 

of items. Also, because the Navy has not updated the data used to compute 

administrative lead time requirements for some aviation items, those 

requirements are overstated. 

The Navy’s $4.7 billion increase was not uniform across all requirements. 

Safety level, repair cycle, production lead time, economic order quantity, 

and insurance items requirements all increased by approximately 

$5.0 billion. However, requirements for Navy war reserves, unfilled 

requisitions, and administrative lead time actually decreased during this 

period, by $331 million (see fig. 4). 

Navy Inventory 

Requirements Increased 

for a Variety of Reasons 

Navy Requirements Increased 

$4.7 Billion 
Page 14 GAO-03-355 Defense Inventory 

Figure 4: Changes in Navy Inventory Requirements between September 30, 1999, 

and September 30, 2001 

A large part of the Navy’s increase was due to a change in the way the 

Navy accounts for aviation inventory requirements for parts held by ships 

and air squadrons. According to the Navy, prior to 1996, aviation items 

that inventory control points16 sold to customers onboard ships and at 

installations were not accounted for in its inventory. In 1996, the Navy 

began accounting for aviation items held by ships and installations by 

recognizing these requirements and assets in its inventory system and 

recording them as insurance item requirements. The Navy made the 

change in order to provide item managers visibility of the inventory and 

associated requirements and assets. Most of the increase in requirements 

and inventory occurred after 1999 when the Navy began to include 

aviation parts held on aircraft carriers. Generally, the change in 

accounting for these requirements resulted in a $3.4 billion increase in 

 16 An inventory control point is responsible for the management of a group of items, 

including the computation of requirements and the purchase of inventory. 
Page 15 GAO-03-355 Defense Inventory 

Navy insurance item requirements,17 from $2.4 billion on September 30, 

1999, to $5.8 billion on September 30, 2001. 

To gain insight into why increases in the Navy’s inventory requirements 

occurred, we compared the 307,000 items the Navy managed as of 

September 30, 1999, to the 309,000 items managed as of September 30, 

2001, and identified 279,000 items that were managed in both years.18

Overall, the value of the 279,000 items increased $4.2 billion between 

September 30, 1999, and September 30, 2001 (see table 3). Of this amount, 

$3.1 billion was the result of increased inventory requirement quantities 

and $1.1 billion was due to price changes. About 37,000 items accounted 

for $4.3 billion in inventory requirements increases, and another 37,000 

items accounted for a $1.2 billion decrease in inventory requirements 

decreases. There was no change in inventory requirement quantities for 

the remaining 205,000 items during the same period of review. 

Table 3: Comparison of Requirements for 279,000 Items Managed by the Navy at the 

End of Fiscal Years 1999 and 2001 

Dollars in billions 

Status of 

requirement 

quantity Items 

Change in 

requirement 

quantity 

Change in 

price Total change 

Increased 37,000 $4.3 $0.8 $5.1 

Stayed the 

same 205,000 NA 0.2 0.2 

Decreased 37,000 -1.2 0.2 -1.0 

Total 279,000 $3.1 $1.1 $4.2 

Source: DOD. 

Legend: NA = Not Applicable. 

Notes: GAO’s analysis of DOD data. 

Totals do not add due to rounding. 

We also reviewed in more detail 90 of the 279,000 items. We selected the 

90 items because they had large increases in requirements and accounted 

for $1.1 billion of the $4.2 billion of the requirements increase associated 

 17 While the aviation items held by ships and installations are not insurance items, the Navy 

began reporting them as such in order to retain their visibility to item managers. 

18 About 28,000 items that the Navy managed as of September 30, 1999, were 

discontinued by September 30, 2001; however, the Navy added about 30,000 new 

items after September 30, 1999. 
Page 16 GAO-03-355 Defense Inventory 

with the 279,000 items. For 37 of the 90 items, insurance requirements 

increases accounted for $454 million of the 90 items’ $1.1 billion total 

requirements increase between 1999 and 2001. Of the $454 million, 

$428 million of the increase was attributable to including existing 

aviation requirements and $26 million was attributable to new aviation 

requirements. For example, the insurance requirement for an aviation 

radar transmitter, valued at $446,000 each and used on the F-18 and the 

AV-8B aircraft, increased from 44 transmitters on September 30, 1999, to 

196 on September 30, 2001. The requirement caused an increase of 

128 transmitters by recognizing existing aviation requirements in the 

Navy’s inventory and an increase of another 24 transmitters as a result of 

new requirements for these transmitters in newer versions of the 

F-18 aircraft. 

In addition to the $454 million increase in insurance item requirements, 

our analysis of the 90-item sample identified a wide variety of additional 

reasons for the increases in requirements. For example, increased usage 

of items resulted in requirements increasing by $294 million for 46 items. 

Increased usage was often the result of changes in demand for an item, 

defective parts needing to be replaced, and items wearing out at a faster 

rate than expected. Changes in the Navy’s stock, overhaul, or operational 

policies; the inability to find a commercial source for an item; and the 

unavailability of material needed to manufacture items were among the 

other reasons for requirements increases. Table 4 summarizes the reasons 

identified for the requirements increases. Additional information and 

examples are discussed in more detail in appendix IV. 
Page 17 GAO-03-355 Defense Inventory 

Table 4: Reasons for Navy Requirements Increases for Items Reviewed 

Dollars in millions 

Reason for increase 

Number of items 

affected 

Increase in 

requirements 

Increase in insurance item 

requirements 37 $454 

Usage of the item increased 46 294 

Navy changed stock, overhaul, or 

operational policies 36 126 

Source or repair issues 29 137 

Uncertainty of demand, lead time 

or wear-out rate increased safety 

levels 22 72 

Increases were not valid 7 98 

Data anomalies 2 2 

Source: DOD. 

Notes: GAO’s analysis of DOD data. 

Because some items had more than one reason for requirements increases, the number of items and 

value of the increased requirements exceeds 90 and $1.1 billion, respectively. 

The Navy has not formally updated the data it uses to project 

administrative lead time19 requirements for aviation parts since 1999, and 

thus these requirements are overstated. Before 1999, the Navy used the 

actual administrative lead time from an item’s previous procurement as a 

basis for projecting its future administrative lead time requirements for 

aviation parts. In 1999, the Navy began using an administrative lead time 

matrix for computing the requirements. Under this approach, the Navy 

places aviation items into matrix cells based on the type of item being 

purchased, the size of the potential purchase, and the type of contract to 

be used to purchase the item. The Navy believes that items that are similar 

and are purchased in a similar manner will have similar lead times. As of 

September 30, 2001, the Navy had computed $895 million of administrative 

lead time requirements for its 101,000 aviation parts. 

When the Navy implemented the matrix approach for computing 

administrative lead time requirements in 1999, it based the requirements 

on actual fiscal year 1997 lead time data. Since 1997 the Navy has generally 

reduced its actual administrative lead time. While the Navy has 

recomputed its administrative lead times using statistical techniques 

 19 Administrative lead time is the time between when the need to buy an item is identified 

and when a contract is let. 

Navy Administrative Lead Time 

Requirements Are Not 

Accurately Computed and Are 

Overstated 
Page 18 GAO-03-355 Defense Inventory 

aimed at reducing fluctuations from year to year, it has not formally 

updated the administrative lead time matrix used to compute requirements 

to reflect the most current, lower data. However, in response to our 

inquiries, the Navy, in December 2002, reviewed the administrative lead 

time data used to compute requirements and found that the data had been 

revised. Item manager reviews and the purchase of items that had not 

recently been purchased led to changes to the lead time data in the files. 

Our analysis of the changes showed that the revised data had lowered the 

administrative lead times for most of the matrix cells and that the 

Navy-computed lead times would be further reduced for most matrix 

cells. For example, revised data reduced the lead time from 200 days to 

183 days for medium-sized sole-source contracts for repairable items. The 

Navy-computed lead time further reduced the lead time to 130 days. In 

contrast, for large-sized sole-source contracts for repairable items, the 

revised data reduced the lead time from 280 days to 183 days while the 

Navy-computed lead time set it at 195 days. 

Navy officials responsible for aviation parts have been reluctant to use 

the lower Navy-computed lead time data. Even though the Navy uses a 

technique to reduce fluctuations in its computed lead time from year to 

year, the officials believe that annual changes in the lead time will result in 

terminating contracts for parts in 1 year and possibly having to repurchase 

the same items the next year. 

The Navy is overstating its administrative lead time requirements for 

aviation items by not using the most current data available for computing 

those requirements. Because the most current data reflects the Navy’s 

reduced administrative lead time, using old data unnecessarily results in 

inaccurate and overstated requirements that can lead to unnecessary 

purchases. The Navy is concerned that using the most current data 

will result in cycles of ordering inventory, canceling the orders, and 

subsequently reordering the items. We believe that using the most current 

data that is based on statistical techniques aimed at reducing potential 

fluctuations in the requirements will result in stable and more accurate 

administrative lead time requirements and help the Navy avoid 

unnecessary purchases. 

Conclusions 
Page 19 GAO-03-355 Defense Inventory 

To improve the accuracy of the Navy’s secondary inventory requirements, 

we recommend that the Secretary of Defense direct the Secretary of the 

Navy to require the Commander, Naval Supply Systems Command, 

require its inventory managers to use the most current data available for 

computing administrative lead time requirements. 

In commenting on a draft of the report, DOD generally concurred with 

the report. With regard to our recommendation, DOD noted that item 

managers use the most current data available to manually compute 

administrative lead time requirements when making management 

decisions for individual items and that in March 2003, the Navy formally 

updated its automated inventory system to begin using the most current 

data available to compute administrative lead time requirements for all 

items. This action to update the Navy’s automated inventory system 

responds to our recommendation. 

DOD’s comments can be found in appendix V. 

As arranged with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

issue date. At that time, we will send copies of this report to the Secretary 

of Defense; the Secretaries of the Army, the Navy, and the Air Force; the 

Director, Defense Logistics Agency; the Director, Office of Management 

and Budget; and other interested congressional committees. We will also 

make copies available to others upon request. In addition, the report will 

be available at no charge on the GAO Web site at http://www.gao.gov/. 

Recommendation for 

Executive Action 

Agency Comments 
Page 20 GAO-03-355 Defense Inventory 

Please contact me on (202) 512-8365, if you or your staff have any 

questions concerning this report. Staff acknowledgments are listed in 

appendix VI. 

Sincerely yours, 

William M. Solis, Director 

Defense Capabilities and Management 
Appendix I: Scope and Methodology 

Page 21 GAO-03-355 Defense Inventory 

To identify changes in the Department of Defense’s (DOD) on-hand and 

on-order inventories for fiscal years 1996 through 2001, we used data 

developed in prior reviews and inventory stratification reports. We 

analyzed on-hand and on-order inventories as they related to the military 

components’ requirements objectives. We held meetings to discuss these 

observations with officials from the Army Materiel Command, Alexandria, 

Virginia; the Naval Supply Systems Command, Mechanicsburg, 

Pennsylvania; the Air Force Materiel Command, Dayton, Ohio; and the 

headquarters of Defense Logistics Agency, Alexandria, Virginia. To 

determine the number of items that had more than or less than enough 

inventory to satisfy requirements, we obtained computerized inventory 

records from the military components as of September 30, 2001, the most 

recent end of fiscal year data at the time we began our examination. We 

did not test the reliability of the data. We used the computerized records to 

compare on-hand and on-order inventories to requirements on an item-byitem basis to determine if items had sufficient inventory available to 

satisfy requirements. DOD reported that its secondary inventory was 

valued at $63.3 billion in its September 30, 2001, Supply System Inventory 

Report. For our analyses, we used inventory stratification files and reports. 

We did not revalue the inventory that needs to be repaired to recognize the 

repair cost, and we did not value inventory that is to be disposed of at 

salvage prices. Also, our analyses did not include fuel, certain inventories 

held by units, and Marine Corps inventory. Fuel and inventories held by 

units are not stratified by requirement, and the Marine Corps inventory 

represents a small part of the universe. 

To ascertain the causes for increases in inventory requirements, we 

compared September 30, 1999, inventory requirements to September 30, 

2001, inventory requirements for the military components. Because the 

Navy had the largest dollar increase in requirements, we analyzed the Navy 

requirements in more detail. For items that the Navy managed in both 1999 

and 2001, we compared the requirements to determine if the requirements 

increased, stayed the same, or decreased. We selected 90 items for 

detailed review based on how much their requirements increased between 

1999 and 2001. The 90 items accounted for about $1.1 billion of the Navy’s 

$4.7 billion increase in requirements. We met with appropriate personnel 

from the Philadelphia and Mechanicsburg, Pennsylvania, offices of the 

Naval Inventory Control Point to identify the specific reasons for the 

items’ increase in requirements. 

Appendix I: Scope and Methodology 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 22 GAO-03-355 Defense Inventory 

DOD’s reports on spare parts spending—called Exhibit OP-31, Spares and 

Repair Parts, and submitted as part of the President’s annual budget 

submission—do not provide an accurate and complete picture of spare 

parts funding as required by financial management regulation. As a result, 

the reports do not provide Congress with reasonable assurance about the 

amount of funds being spent on spare parts. Furthermore, the reports did 

not always contain actual expenditure data: all of the Army’s annual 

operations and maintenance appropriations data and most of the services’ 

commodity amounts were shown as estimates. Without actual data, the 

reports are of limited use to Congress as it makes decisions on how best to 

spend resources to reduce spare parts shortages and improve military 

readiness. 

Open Recommendations 

We recommended that the Secretary of Defense: 

• issue additional guidance on how the services are to identify, compile, and 

report on actual and complete spare parts spending information, including 

supplemental funding, in total and by commodity, as specified by Exhibit 

OP-31; and 

• direct the Secretaries of the military departments to comply with Exhibit 

OP-31 reporting guidance to ensure that complete information is provided 

to Congress on the quantities of spare parts purchased and explanations of 

deviations between programmed and actual spending. 

The Army, in its approach for assessing wartime spare parts industrial 

base capability, still does not use current data from industry. Instead, the 

Army uses historical parts procurement data because its prior efforts to 

collect current data from industry were not successful due to poor 

response rates. The Army’s assessments depend on historical data and 

resulting lead-time factors to project industry’s contribution to satisfying 

wartime spare parts requirements. Without current data on industry’s 

capability, assessments could be unreliable, resulting in reduced readiness 

due to critical spare parts shortfalls in wartime or inflated and costly war 

reserve spare parts inventories in peacetime. Moreover, the Army’s budget 

requests to Congress for war reserve spare parts risk being inaccurate. 

We identified a program in the Defense Logistics Agency that has several 

attributes reflecting sound management practices that are required for 

reliable industrial base capability assessments. Our analysis of the 

Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Defense Inventory: Better 

Reporting on Spare Parts 

Spending Will Enhance 

Congressional Oversight, 

GAO-03-18, Oct. 24, 2002 

Defense Inventory: 

Improved Industrial Base 

Assessments for Army 

War Reserve Spares Could 

Save Money, GAO-02-650, 

July 12, 2002 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 23 GAO-03-355 Defense Inventory 

approach used by the Army compared to the Defense Logistics Agency’s 

spare parts industrial base assessment program revealed that the Army’s 

approach can be improved in three areas—data collection, data analysis, 

and management strategies. 

Open Recommendations 

We recommended that the Secretary of Defense direct the Army to: 

• establish an overarching industrial base capability assessment process that 

considers the attributes in this report; 

• develop a method to efficiently collect current industrial base capability 

data directly from industry itself; 

• create analytical tools that identify potential production capability 

problems such as those due to surge in wartime spare parts demand; and 

• create management strategies for resolving spare parts availability 

problems, for example, by changing acquisition procedures or by targeting 

investments in material and technology resources to reduce production 

lead times. 

We reported that Air Force and contractor personnel had largely not 

complied with DOD and Air Force inventory control procedures designed 

to safeguard material shipped to contractors, placing items worth billions 

of dollars at risk of fraud, waste, and abuse. 

Open Recommendations 

We recommended that the Secretary of Defense direct the Air Force to: 

• Improve processes for providing contractor access to governmentfurnished material by 

• listing specific stock numbers and quantities of material in repair 

contracts (as they are modified or newly written) that the inventory 

control points have agreed to furnish contractors; 

• demonstrating that automated internal control systems for loading and 

screening stock numbers and quantities against contractor requisitions 

perform as designed; 

Defense Inventory: Air 

Force Needs to Improve 

Control of Shipments to 

Repair Contractors, 

GAO-02-617, July 1, 2002 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 24 GAO-03-355 Defense Inventory 

• loading stock numbers and quantities that the inventory control points 

have agreed to furnish to contractors into the control systems manually 

until the automated systems have been shown to perform as designed; 

and 

• requiring that waivers to loading stock numbers and quantities 

manually are adequately justified and documented based on costeffective and/or mission-critical needs. 

• Revise Air Force supply procedures to include explicit responsibility and 

accountability for 

• generating quarterly reports of all shipments of Air Force material to 

contractors, and 

• distributing the reports to Defense Contractor Management Agency 

property administrators. 

• Determine, for the contractors in our review, what actions are needed to 

correct problems in posting material receipts. 

• Determine, for the contractors in our review, what actions are needed to 

correct problems in reporting shipment discrepancies. 

• Establish interim procedures to reconcile records of material shipped to 

contractors with records of material received by them, until the Air Force 

completed the transition to its Commercial Asset Visibility system in fiscal 

year 2004. 

• Comply with exiting procedures to request, collect, and analyze contractor 

shipment discrepancy data to reduce the vulnerability of shipped 

inventory to undetected loss, misplacement, or theft. 

All the military services extensively use cannibalization—that is, 

removing serviceable parts from one piece of equipment and installing 

them in another—as a routine aircraft maintenance practice. In fiscal 

years 1996 through 2000, the Navy and the Air Force reported about 

850,000 cannibalizations, requiring about 5.3 million additional 

maintenance hours. Cannibalizations have several adverse impacts. They 

increase maintenance costs by increasing mechanics’ workloads, affect 

morale and personnel retention, and sometimes take expensive aircraft 

out of service for long periods of time. Cannibalizations can also create 

additional mechanical problems. The services have many reasons for 

cannibalizing aircraft and strong incentives for continuing to do so. 

However, with the exception of the Navy, they do not consistently track 

the specific reasons for cannibalizations. As a result, much of the 

information on causes is anecdotal. In the broadest sense, cannibalizations 

are done because of pressures to meet readiness and operational needs 

and because of shortcomings in the supply system. 

Military Aircraft: Services 

Need Strategies to Reduce 

Cannibalizations, 

GAO-02-86, 

November 21, 2001 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 25 GAO-03-355 Defense Inventory 

Open Recommendations 

We recommended that the Secretary of Defense direct the Army, the Navy 

and the Air Force to take the following actions: 

• Establish standardized, comprehensive, and reliable cannibalization datacollection procedures and systems for cannibalizations. 

• Measure and report the number of maintenance hours associated with 

cannibalizations. 

• Develop strategies to reduce the number of maintenance hours spent on 

cannibalization, ensure that cannibalized aircraft do not remain grounded 

for long periods of time, and reduce the adverse effects of cannibalizations 

on maintenance costs and personnel. At a minimum, the strategies should 

include criteria to determine (1) which cannibalizations are appropriate, 

(2) cannibalization-reduction goals, and (3) the actions to be taken to meet 

those goals. The services must assign responsibility for ensuring that goals 

are being met and allocate resources for this purpose. 

The Navy’s Product Quality Deficiency Reporting Program has been 

largely ineffective in gathering the data needed for analyses so that Navy 

managers can determine the full extent of spare parts quality deficiencies 

affecting maintenance activities. Without these data, managers lose 

opportunities to initiate important corrective and preventive action with 

parts and suppliers. 

Open Recommendations 

We recommended that the Secretary of Defense direct the Secretary of the 

Navy to: 

• increase the program’s levels of (1) training, describing what quality 

deficiencies to report, how to report them, and why it is important to the 

Navy; (2) incentives, including financial credits back to the reporting unit 

where appropriate to encourage participation; (3) automation support, to 

simplify and streamline reporting and analysis; and (4) management 

emphasis provided to the program, as necessary, to determine the causes, 

trends, and responsibilities for parts failures and achieve greater 

compliance with joint-service requirements, including reporting on parts 

that fail before the end of their design life; and 

• require program officials to measure and periodically report to the 

appropriate Defense and Navy managers the results of the program in such 

areas as actions taken to correct parts quality deficiencies, prevent 

Defense Inventory: Navy 

Spare Parts Quality 

Deficiency Reporting 

Program Needs 

Improvement, GAO-01-923, 

August 16, 2001 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 26 GAO-03-355 Defense Inventory 

recurrences, and obtain credits or reimbursements from suppliers for 

deficient products. 

Spare parts shortages for the EA-6B and the F-14 aircraft adversely 

impacted the Navy’s readiness to perform assigned missions and the 

economy and efficiency of its maintenance activities. The shortages also 

contributed to problems retaining personnel. The primary reasons for 

spare parts shortages were that more parts were required than the Navy 

originally anticipated and problems in identifying, qualifying, or 

contracting with a private company to produce or repair the parts. 

We did not make any recommendations in this report because of our prior 

recommendations on improving the Navy’s management framework for 

implementing commercial practices and DOD’s efforts to develop an 

overarching integration plan. 

Aviation spare parts shortages for the Apache, Blackhawk, and Chinook 

helicopters adversely affected operations and led to inefficient 

maintenance practices that have lowered morale of maintenance 

personnel. Specifically, while the helicopters generally met their missioncapable goals, indicating that parts shortages have not affected their 

mission capability, supply availability rates and cannibalization of parts 

from one aircraft to another indicate that spare parts shortages have 

indeed been a problem. The reasons for the unavailability of the 90 parts 

we reviewed included actual demands for parts that were greater than 

anticipated, delays in obtaining parts from a contractor, and problems 

concerning overhaul and maintenance. For example, because a cracked 

gear in a Chinook transmission was discovered during an overhaul, the 

entire fleet was grounded in August 1999. As a result, the demand for the 

part has been much greater than anticipated. The Army and the Defense 

Logistics Agency have initiatives under way or planned that are designed 

to improve the availability of aviation parts. The initiatives generally 

address the reasons we identified for spare parts shortages. Additionally, 

the Army has developed a Strategic Logistics Plan that is designed to 

change its current approach to one that is more effective, efficient, and 

responsive. The plan’s initiatives for resolving spare parts shortages are 

linked to the asset management process under the Army’s planned change 

in approach. Some of these initiatives are new or in the planning stages. 

Once the initiatives are more fully developed, we plan to review them to 

determine whether there are opportunities to enhance them. 

Navy Inventory: Parts 

Shortages Are Impacting 

Operations and 

Maintenance 

Effectiveness, GAO-01-771, 

July 31, 2001 

Army Inventory: Parts 

Shortages Are Impacting 

Operations and 

Maintenance 

Effectiveness, GAO-01-772, 

July 31, 2001 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 27 GAO-03-355 Defense Inventory 

Because we previously reported problems with the way the Army has 

implemented its logistics initiatives and recommended that it develop a 

management framework for its initiatives, to include a comprehensive 

strategy and performance plan, we did not make recommendations in 

this report. 

Spare parts shortages on the E-3 and C-5 aircraft and F-100-220 engines 

have adversely affected the performance of assigned missions and the 

economy and efficiency of maintenance activities. Specifically, the Air 

Force did not meet its mission-capable goals for the E-3 or C-5 during 

fiscal years 1996-2000, nor did it meet its goal to have enough F-100-220 

engines to meet peacetime and wartime goals during that period. The 

majority of reasons cited by item managers at the maintenance facilities 

for spare parts shortages were most often related to more spares being 

required than were anticipated by the inventory management system and 

delays in the Air Force’s repair process as a result of the consolidation of 

repair facilities. Other reasons included (1) difficulties with producing or 

repairing parts, (2) reliability of spare parts, and (3) contracting issues. 

The Air Force and the Defense Logistics Agency have numerous overall 

initiatives under way or planned that may alleviate shortages of the spare 

parts for the three aircraft systems we reviewed. The initiatives generally 

address the reasons we identified for the shortages. To ensure that the 

initiatives are achieving the goals of increasing efficiencies in the supply 

system, the Air Force has developed a Supply Strategic Plan that contains 

specific goals and outcome-oriented measures for the initiatives. 

Because the Air Force’s plan is in keeping with our previous 

recommendations to improve overall logistics planning, we did not make 

recommendations in this report. We will separately review the overall 

approach and initiatives, once they are more fully developed, to determine 

whether there are opportunities to enhance these efforts. 

DOD’s components do not have sound analytical support for determining 

when it is economical to retain or dispose of the $9.4 billion in inventory 

the department is holding for economic reasons. The components’ 

decision-making approaches for retaining economic retention inventory 

have evolved from the use of economic models to the use of judgmentally 

determined levels. In addition, the department did not have sound 

analytical support for the maximum levels they selected. Also, although 

the department requires annual reviews of the analyses supporting 

economic retention decisions, the components have generally not done 

Air Force Inventory: Parts 

Shortages Are Impacting 

Operations and 

Maintenance 

Effectiveness, GAO-01-587, 

June 27, 2001 

Defense Inventory: 

Approach for Deciding 

Whether to Retain or 

Dispose of Items Needs 

Improvement, GAO-01-475, 

May 25, 2001 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 28 GAO-03-355 Defense Inventory 

such reviews. As a result of these weaknesses, the department is 

vulnerable to retaining some items when it is uneconomical to do so and 

disposing of others when it is economical to retain them. 

Open Recommendations 

We recommended that the Secretary of Defense direct the Secretaries of 

the Army, the Navy, and Air Force and the Director of the Defense 

Logistics Agency to: 

• establish milestones for reviewing current and recently used approaches 

for making decisions on whether to hold or dispose of economic retention 

inventory to identify actions needed to develop and implement appropriate 

approaches to economic retention decisions; and 

• annually review their approaches to meet department regulations to 

ensure that they have sound support for determining economic retention 

inventory levels. 

In the October-December 2000 time frame, the Army reported that it had 

about 35 percent of its prepositioned spare parts on hand and a $1-billion 

shortfall in required spare parts for its war reserves. Notwithstanding the 

reported shortages, we identified uncertainties about the accuracy of the 

Army’s requirements. For example, we identified a potential mismatch 

between the Army’s methodology for determining parts requirements and 

the Army’s planned battlefield maintenance practices. 

Open Recommendations 

We recommended that the Secretary of Defense: 

• Assess the priority and level of risk associated with the Army’s plans for 

addressing the reported shortfall in Army war reserve spare parts. 

• Direct the Army to provide accurate calculations of the Army’s war 

reserve spare parts requirements by 

• developing and using the best available consumption factors in 

calculating all spare parts requirements for the Army’s war reserves; 

• eliminating potential mismatches in how the Army calculates its war 

reserve spare parts requirements and the Army’s planned battlefield 

maintenance practices; and 

• developing fact-based estimates of industrial base capacity to provide 

the needed spare parts in the two major theater war scenarios time 

frames. 

Defense Inventory: Army 

War Reserve Spare Parts 

Requirements Are 

Uncertain, GAO-01-425, 

May 10, 2001 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 29 GAO-03-355 Defense Inventory 

• Include in future industrial capabilities reports more comprehensive 

assessments on industry’s ability to supply critical spare parts for two 

major theater wars. 

Requirements for the 490 items we reviewed often changed after the 

orders were placed, which caused the items to exceed requirements. 

Further, because of inaccurate inventory records, 182 of the 490 items 

(valued at $170 million) were reported as excess, but were not actually 

excess to requirements. Because of the large number of inaccurate 

records, neither DOD nor the military components know whether 

managers are efficiently focusing their efforts to cancel excess inventory 

on order, and the department does not have an accurate view of the total 

value of its excess inventory on order. Each component’s process for 

canceling orders that exceeded requirements differs and cannot be relied 

on to consistently identify orders to be considered for cancellation or to 

terminate orders when economical. 

Specifically: 

• The components use different criteria for the amount of excess inventory 

on order they consider for cancellation. 

• Only the Defense Logistics Agency consistently uses its computer model to 

determine whether it is more economical to cancel orders or not. 

However, of the $696 million its model referred for consideration during a 

3-month period in 1999, less than $11 million in orders were canceled. 

• The military components’ frequency in reviewing orders of excess 

inventory for cancellation ranges from monthly to quarterly. The longer 

components wait to consider an item for cancellation, the less likely 

cancellation will be cost-effective because they have to pay the contractor 

for costs incurred until the order is canceled. 

• The components’ goals for reducing excess inventory on order vary and 

are not comparable. Thus, the department cannot evaluate the 

components’ progress in reducing excess inventory on order in a 

consistent way. 

Open Recommendations 

We recommended that the Secretary of Defense, in conjunction with the 

Secretaries of the Army, the Navy, and the Air Force, and the Director of 

the Defense Logistics Agency review and improve the processes for 

identifying and canceling orders, focusing on areas such as 

Defense Inventory: 

Process for Canceling 

Inventory Orders Needs 

Improvement, 

GAO/NSIAD-00-160, 

June 30, 2000 
Appendix II: GAO Reports and Open 

Recommendations Relating to DOD’s 

Inventory Management Problems 

Page 30 GAO-03-355 Defense Inventory 

• the accuracy of inventory management records; 

• the level at which the services and the Defense Logistics Agency identify 

excess inventory on order that is subject to cancellation review, including 

low-dollar excess inventory on order that is excluded from cancellation 

review; 

• the timeliness and frequency of reviews for identifying excess items onorder; and 

• the validity and use of the military components’ termination models in 

making economic analyses. 

We also recommended that the Secretary of Defense require the 

Secretaries of the Army, the Navy, and the Air Force, and the Director of 

the Defense Logistics Agency to report on the amount of all excess 

inventory on order, identifying inventory on order that exceeds both the 

requirements objective and the approved acquisition objective. 
Appendix III: DOD and Military Component 

Inventory Requirements at the End of Fiscal 

Years 1999 and 2001 

Page 31 GAO-03-355 Defense Inventory 

Table 5: Comparison of Inventory Requirements for the Department of Defense at 

the End of Fiscal Years 1999 and 2001 

Dollars in billions 

Requirement 

Fiscal year 

1999 

requirements 

Fiscal year 

2001 

requirements 

Increase/ 

decrease since 

fiscal year 

1999 

Percent 

change since 

fiscal year 

1999 

War reserves $2.9 $3.3 $0.4 13 

Depot 

requirements 

objective 

a 0.3 0.3 b 

Unfilled 

requisitions 

3.2 3.1 -0.1 -3 

Safety level 5.9 8.2 2.3 39 

Insurance items 4.6 7.4 2.8 62 

Repair cycle 3.6 4.2 0.6 18 

Production lead 

time 

6.1 8.1 2.0 32 

Administrative 

lead time 

3.5 4.4 0.9 26 

Lead time 

nonrecurring 

demandc 

2.7 1.6 -1.1 -39 

Economic order 

quantity 

8.1 10.5 2.4 30 

Total $40.6 $51.2 $10.6 26 

Source: DOD.

a The Army is the only component that uses this requirement for reporting retail level requirements 

and inventory. It began its use in fiscal year 2000. 

b

 This percentage calculation is not meaningful since comparable data were not available for fiscal 

year 1999. 

c The Air Force is the only component that reports lead time nonrecurring demand as a separate 

requirement. 

Appendix III: DOD and Military Component 

Inventory Requirements at the End of 

Fiscal Years 1999 and 2001 
Appendix III: DOD and Military Component 

Inventory Requirements at the End of Fiscal 

Years 1999 and 2001 

Page 32 GAO-03-355 Defense Inventory 

Table 6: Comparison of Inventory Requirements for the Defense Logistics Agency 

at the End of Fiscal Years 1999 and 2001 

Dollars in billions 

Requirement 

Fiscal year 

1999 

requirements 

Fiscal year 

2001 

requirements 

Increase/

decrease since 

fiscal year 

1999

Percent 

change since 

fiscal year 

1999

Unfilled 

requisitions $0.8 $1.0 $0.2 21

Safety level 1.0 1.6 0.6 62

Production lead 

time 2.9 3.5 0.6 21

Administrative 

lead time 1.9 2.6 0.7 39

Economic order 

quantity 2.6 3.8 1.2 46

Total $9.1 $12.4 $3.3 36

Source: DOD. 

Note: Percentages were calculated prior to rounding. 
Appendix III: DOD and Military Component 

Inventory Requirements at the End of Fiscal 

Years 1999 and 2001 

Page 33 GAO-03-355 Defense Inventory 

Table 7: Comparison of Inventory Requirements for the Army at the End of 

Fiscal Years 1999 and 2001 

Dollars in billions 

Requirement 

Fiscal year 

1999 

requirements 

Fiscal year 

2001 

requirements 

Increase/ 

decrease since 

fiscal year 

1999 

Percent 

change since 

fiscal year 

1999 

War reserves $0.9 $1.1 $0.2 20 

Depot 

requirements 

objective a 0.3 0.3 b 

Unfilled 

requisitions 0.8 0.9 0.2c 23 

Safety level 0.3 0.9 0.6 203 

Insurance items 0.0d 0.0d 0.0d 67d

Repair cycle 0.6 0.9 0.3 52 

Production lead 

time 1.0 1.6 0.6 59 

Administrative 

lead time 0.3 0.4 0.2c 64 

Economic order 

quantity 2.1 2.9 0.8 35 

Total $6.0 $9.1 $3.1 52 

Source: DOD. 

Note: Percentages were calculated prior to rounding. 

a The Army did not use this requirement for fiscal year 1999. 

b

 Because there was no data for fiscal year 1999, this percentage could not be computed. 

c Differences are due to rounding. 

d The Army reported insurance items valued at less than $50 million. 
Appendix III: DOD and Military Component 

Inventory Requirements at the End of Fiscal 

Years 1999 and 2001 

Page 34 GAO-03-355 Defense Inventory 

Table 8: Comparison of Inventory Requirements for the Navy at the End of 

Fiscal Years 1999 and 2001 

Dollars in billions 

Requirement 

Fiscal year 

1999 

requirements 

Fiscal year 

2001 

requirements 

Increase/ 

decrease since 

fiscal year 

1999 

Percent 

change since 

fiscal year 

1999

War reservesa $0.0 $0.0 $0.0 -32

Unfilled 

requisitions 0.7 0.5 -0.3b

 -35

Safety level 0.6 0.8 0.2 35

Insurance items 2.4 5.8 3.4 142

Repair cycle 1.2 1.6 0.4 30

Production lead 

time 1.1 1.6 0.5 50

Administrative 

lead time 1.1 1.0 -0.1 -6

Economic order 

quantity 3.4 3.8 0.5b

 14

Total $10.5 $15.2 $4.7 44

Source: DOD. 

Note: Percentages were calculated prior to rounding. 

a

 The Navy reported war reserve items valued at less than $50 million. 

b

 Differences are due to rounding. 
Appendix III: DOD and Military Component 

Inventory Requirements at the End of Fiscal 

Years 1999 and 2001 

Page 35 GAO-03-355 Defense Inventory 

Table 9: Comparison of Inventory Requirements for the Air Force at the End of 

Fiscal Years 1999 and 2001 

Dollars in billions 

Requirement 

Fiscal year 

1999 

requirements 

Fiscal year 

2001 

requirements 

Increase/

decrease since 

fiscal year 

1999

Percent 

change since 

fiscal year 

1999

War reserves $2.0 $2.2 $0.2 11

Unfilled 

requisitions 0.9 0.7 -0.2 -22

Safety level 4.1 5.0 0.9 22

Insurance items 2.2 1.5 -0.6a-28

Repair cycle 1.8 1.7 0.0a-2

Production lead 

time 1.1 1.4 0.2a

20

Administrative 

lead time 0.3 0.4 0.1 29

Lead time 

nonrecurring 

demand 2.7 1.6 -1.1 -39

Total $14.9 $14.5 $-0.5a-3

Source: DOD. 

Note: Percentages were calculated prior to rounding. 

a

 Differences are due to rounding. 
Appendix IV: Reasons for Requirements 

Increasing between September 30, 1999, and 

September 30, 2001, for 90 Sample Items 

Page 36 GAO-03-355 Defense Inventory 

Increased usage resulted in requirements increasing by $294 million for 

46 items. Usage of the items increased for a variety of reasons, including 

• recurring demand for items increased, 

• defective parts needing to be replaced, 

• demands being received for items that are not normally stocked, 

• increases in the number of ships or aircraft using items, 

• items reaching the end of their useful life, 

• unplanned foreign military sales, 

• usage shifting from other items, 

• items wearing out at a faster rate than expected, and 

• items being new to the inventory system. 

For example, unfilled requisitions, safety level, repair cycle, and 

production and administrative lead time requirements for the hub used on 

the AH-1W (Cobra) helicopter increased from 24 on September 30, 1999, to 

48 on September 30, 2001. During that time, many of the hubs reached the 

end of their 1,100-hour life and had to be replaced. As a result, demand for 

the $275,000 hub increased from 31 a year in 1999 to 74 a year in 2001. 

Changes in stock, overhaul, or operational policies resulted in 

requirements increases of $126 million for 36 items. For example, repair 

cycle requirements for a radio transmitter modulator increased from 10 in 

September 1999 to 22 in September 2001. The increase was a result of the 

Navy requiring that the transmitter modulator, valued at $136,000 each, be 

operational 100 percent of the time. Previously, ships were permitted to 

operate in a degraded status with the modulator not operational. 

Source and repair issues for 29 items resulted in requirements increases of 

$137 million. A wide variety of reasons fell into this category, including 

entering requirements for an item that would no longer be available to 

provide support for a weapon system for its remaining life, difficulties in 

identifying a commercial source for an item, unavailability of material 

needed to manufacture items, and increased time needed to repair or buy 

an item. For example, economic order quantity requirements for a data 

module used in a submarine control panel increased from 75 in September 

1999 to 410 in September 2001. The item manager explained that the 

manufacturing source of supply for the data module was being lost, and 

the requirement was increased to protect the 419 on-hand modules from 

being subject to disposal. In August 2002, the Navy had 229 of the $10,000 

modules on hand. 

Appendix IV: Reasons for Requirements 

Increasing between September 30, 1999, and 

September 30, 2001, for 90 Sample Items 

Navy Usage Increased 

Navy Changed Stock, 

Overhaul, or Operational 

Policies 

Source or Repair Issues 
Appendix IV: Reasons for Requirements 

Increasing between September 30, 1999, and 

September 30, 2001, for 90 Sample Items 

Page 37 GAO-03-355 Defense Inventory 

Uncertainty of demand, lead time, and the rate at which items wear out for 

22 items resulted in safety level requirements increasing by $72 million. 

Safety level requirements are intended to compensate for unplanned 

increases in demand, lead times, and the rate at which items wear out. For 

example, the safety level requirement for an inertial navigational unit used 

on several aircraft such as the AV-8B, the F-14D, and several versions of 

the F-18 increased from 2 in September 1999 to 15 in September 2001. The 

increased requirement was the result of demands for the $170,000 unit 

increasing from 155 to 205 a year. 

Requirements increases, valued at $98 million, were not valid for seven 

items. The reasons for the invalid requirements included overstating the 

2001 requirement, understating the 1999 requirement, and inappropriately 

recording nonrecurring requirements. For example, the September 2001 

requirements requiring replacement for an electron tube for a transmitter 

used on the EA-6B aircraft were overstated because the requirements were 

inappropriately based on demand for the tube instead of the rate at which 

the tube was failing and needed to be replaced. As a result, safety level, 

repair cycle, administrative and production lead times and economic order 

quantity requirements were overstated by 2,124 tubes for the $57,500 item. 

Data anomalies for two items resulted in a requirement increase of 

$2 million. For both of the items, requirements increased for unfilled 

requisitions. The item manager for the items explained that the items’ 

requirements, as of September 30, 2001, reflected back orders as of that 

date and that the back orders were not the result of any particular 

reason—just the status as of that date. The item manager explained that 

the back orders went away when material was shipped a few days after 

September 30th. 

Uncertainty of Demand, 

Lead Time, or Wear-Out 

Rate 

Increases Were Not Valid 

Data Anomalies 
Appendix V: Comments from the Department of Defense 

Page 38 GAO-03-355 Defense Inventory 

Appendix V: Comments from the Department 

of Defense 
Appendix V: Comments from the Department of Defense 

Page 39 GAO-03-355 Defense Inventory 
Appendix VI: Staff Acknowledgments 

Page 40 GAO-03-355 Defense Inventory 

Key contributors to this report were Lawson Gist, Jr., Louis Modliszewski, 

David Epstein, and R.K. Wild. 

Appendix VI: Staff Acknowledgments 

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